LeoGlossary: Wright's Law

Names after Theodore Wright.

This comes form an observation in the aerospace industry. Basically the idea goes like this:

Each time the number of units manufactured doubles, the cost declines by 20%.

The 20% is a rule of thumb since the actual percentage will vary based upon the industry. However, when looking at it across many different industries, this does seem to hold.

It is based upon the learning curve which charts out exponentially. Again, we can use simply logic to understand how a company will learn as it produces more. Hence, over the course of the doubling of production, the knowledge gained will translate into a cost savings.

Some industries make it very difficult to see the impact of Wright's Law. For example, the automobile industry has a decline of about 15% for each doubling. The challenge if that the doubling rate, since the industry is more than 100 years old, is near 30 years. There were a lot of cars produced over the last century.

Where Wright's Law could be having a bigger impact is with electric vehicle and batter manufacturing. These two industries are much earlier in the process.

This is also called the "Experience Curve".

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